<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
----------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File Number: 33-57342
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1158484
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2060 Broadway, Suite 400
Boulder, Colorado 80302
- ------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 444-0240
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Common Stock, $.001 par value 2,659,543 shares
- ----------------------------- ----------------
<S> <C>
Class Outstanding as of August 11, 1997
</TABLE>
<PAGE> 2
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
Index to Form 10-Q/A
June 30, 1997
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 1
Consolidated Statements of Income
for the three and six months
ended June 30, 1997 and 1996 2
Consolidated Statements of Cash Flows
for the six months ended
June 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-15
PART II. OTHER INFORMATION
Item . Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial statements
- -------------------------------------------------------------------------------
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,829,488 $ 4,531,355
Accounts receivable:
Gilpin Hotel Venture 89,357 78,865
Other 11,549 2,071
Income taxes receivable 325,100
Deferred tax asset 79,267 79,267
----------- -----------
Total current assets 4,009,661 5,016,658
INVESTMENT IN AND ADVANCES TO
GILPIN HOTEL VENTURE 3,944,401 3,966,645
LAND
Leased to Gilpin Hotel Venture
Casino Ground 1,967,689 1,967,689
Millsite 29 791,801 791,801
Held for development:
Oklahoma 579,049 579,049
Under development:
Millsite 30 and other 1,466,317 1,466,317
Millsite 31 2,418,754 2,418,754
Millsite 32 3,568,234 3,568,234
Millsite 34 1,080,000
----------- -----------
Total land 11,871,844 10,791,844
PROJECT DEVELOPMENT COSTS 13,957,906 4,699,513
OTHER ASSETS 54,707 49,335
----------- -----------
TOTAL $33,838,519 $24,523,995
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,030,397 $ 495,786
Current portion of long-term debt 438 124,496
----------- -----------
Total current liabilities 2,030,835 620,282
NON CURRENT LIABILITIES
Convertible note payable to shareholder 6,000,000 1,500,000
Long term debt 2,251,639
Deferred tax liability 61,506 61,506
----------- -----------
Total liabilities 8,092,341 4,433,427
----------- -----------
COMMITMENT AND CONTINGENCIES
COMMON STOCK SUBJECT TO PUT OPTIONS 137,499
MINORITY INTEREST 6,704,688 1,793,500
STOCKHOLDERS' EQUITY:
Preferred stock; $.001 par value; 10,000,000 shares authorized;
none issued and outstanding
Common stock; $.001 par value; 40,000,000 shares authorized;
2,659,543 and 2,672,043 shares issued and outstanding, respectively 2,660 2,670
Additional paid-in capital 10,439,386 10,470,306
Retained earnings 8,599,444 7,686,593
----------- -----------
19,041,490 18,159,569
----------- -----------
TOTAL $33,838,519 $24,523,995
=========== ===========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
PART I - FINANCIAL INFORMATION (UNAUDITED) - (continued)
Item 1. Financial Statements (continued)
- -------------------------------------------------------------------------------
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Gilpin Hotel Venture:
Management fees $ 72,553 $ 82,718 $ 162,076 $ 164,702
Rental income 107,333 105,057 219,871 214,470
Parking lot operation 75,000 93,804 150,000 192,608
Interest 29,831 50,438 73,779 102,898
Other 10,000 25,000
----------- ----------- ----------- -----------
Total revenue 294,717 332,017 630,726 674,678
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Compensation and related costs 203,631 180,742 410,260 351,271
Other general and administrative 74,377 106,368 159,363 249,898
Interest 54,736 119,882
----------- ----------- ----------- -----------
Total costs and expenses 278,008 341,846 569,623 721,051
----------- ----------- ----------- -----------
EQUITY IN EARNINGS OF JOINT VENTURE 523,146 615,294 1,218,702 1,231,390
INCOME BEFORE INCOME TAXES & EXTRAORDINARY ITEM 539,855 605,465 1,279,805 1,185,017
INCOME TAXES (172,725) (225,000) (452,725) (440,000)
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 367,130 380,465 827,080 745,017
EXTRAORDINARY ITEM - EARLY RETIREMENT OF DEBT $ 85,771 $ 85,771
COSTS RELATED TO COMMON STOCK SUBJECT TO PUT OPTIONS (6,192) (15,234)
----------- ----------- ----------- -----------
NET INCOME ATTRIBUTABLE TO COMMON SHARES $ 452,901 $ 374,273 $ 912,851 $ 729,783
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE:
Income before extraordinary item $ 0.14 $ 0.15 $ 0.31 $ 0.30
Extraordinary item $ 0.03 $ 0.03
----------- ----------- ----------- -----------
Net income $ 0.17 $ 0.15 $ 0.34 $ 0.29
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,672,090 2,508,078 2,672,090 2,513,572
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
PART I - FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 912,851 $ 745,017
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 4,269
Equity in earnings of joint venture (686,756) (659,610)
Noncash compensation 4,000
Gain on early retirement of debt (136,796)
Changes in operating assets and liabilities:
Accounts receivable (19,970) 41,499
Accounts payable and accrued expenses (32,758) 2,493
Income taxes receivable/payable 325,100 45,367
Other assets (8,649)
----------- -----------
Net cash provided by operating activities 361,291 174,766
----------- -----------
INVESTING ACTIVITIES:
Land and land improvements (38,110)
Distributions from GHV 709,000 1,746,563
Note receivable Gilpin Gold, Inc. 1,335,971
Payments of project development costs (7,691,024) (475,000)
Other (35,922) (318,465)
----------- -----------
Net cash (used in) provided by investing activities (7,017,946) 2,250,959
----------- -----------
FINANCING ACTIVITIES:
Acquisition of treasury stock and payments upon exercise of put option (137,499) (290,085)
Proceeds from issuance of convertible debt to shareholder 4,500,000
Minority interest contributions to majority-owned subsidiary 3,831,188
Payments on long-term debt (2,238,901) (745,062)
----------- -----------
Net cash provided by (used in) financing activities 5,954,788 (1,035,147)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (701,867) 1,390,578
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,531,355 2,189,648
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,829,488 $ 3,580,226
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Items:
Cash paid for interest $ 93,282 $ 119,881
=========== ===========
Cash paid for income taxes $ 244,776 $ 591,000
=========== ===========
Acquisition of treasury stock $ 275,000
=========== ===========
Non-Cash Items:
Land contributed to majority-owned subsidiary by minority interest $ 1,080,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
1. BUSINESS
Black Hawk Gaming & Development Company, Inc. (the Company) was
incorporated in Colorado, on January 10, 1991, to acquire gaming properties for
development, joint venture and operation. The Company completed the
construction of the Gilpin Hotel Casino (the Casino) in Black Hawk, Colorado,
in September 1992 and the Casino opened on October 1, 1992. The Casino is owned
by the Gilpin Hotel Venture (GHV), in which the Company owns a 50% interest. In
November 1994, GHV acquired an adjacent casino, which was put into operation in
January 1995. In November, 1996, the Company entered into an Amended and
Restated Purchase Agreement and an Operating Agreement to form Black Hawk /
Jacobs Entertainment, LLC (the LLC); for the purpose of developing and managing
a hotel / casino project in Black Hawk, Colorado. The accompanying consolidated
financial statements include the accounts of the LLC as of June 30, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited Consolidated Financial Statements --- In the opinion of
management, the accompanying unaudited consolidated financial statements
reflect all adjustments, consisting only of normal recurring accruals, which
are necessary for the fair presentation of the financial position of the
Company at June 30, 1997. The accompanying unaudited consolidated financial
statements include the accounts of the Company, its wholly owned subsidiary
Native American Management Corp. and its 75% owned subsidiary Black Hawk /
Jacobs Entertainment, LLC. All significant intercompany transactions and
balances have been eliminated in consolidation. The accompanying unaudited
consolidated financial statements should be read in conjunction with the notes
to the consolidated financial statements contained in the Company's Form 10-K
for the year ended December 31, 1996.
Joint Venture --- The Company accounts for its investment in GHV under
the equity method of accounting. All inter-company transactions have been
eliminated to the extent of the Company's ownership in GHV.
New Accounting Pronouncements --- The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards, ("SFAS") 128,
"Earnings per Share." This Statement establishes standards for computing and
presenting earnings per share ("EPS") and applies to all entities with publicly
held common stock or potential common stock. This Statement replaces the
presentation of primary EPS with a presentation of basic EPS. Basic EPS
excludes dilution and is computed by dividing earnings available to common
stockholders by the weighted-average number of common shares outstanding for
the period. This Statement is not expected to have a material effect on the
Company's reported EPS amounts. This Statement is effective for the Company's
financial statements for the year ended December 31, 1997.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was
issued. This Statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This
Statement requires that a company (a) classify items of other comprehensive
income by their nature in a financial statement, and (b) display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. Reclassifications of financial statements for earlier periods provided
for comparative purposes is required. The Company has not determined the
effect, if any, that SFAS 130 will have on its consolidated financial
statements. This Statement is effective for the Company's financial statements
for the year ended December 31, 1998.
4
<PAGE> 7
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(CONTINUED)
In June 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was issued. This Statement establishes
standards for the way that public companies report selected information about
operating segments in annual financial statements and requires that those
companies report selected information about segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This Statement supersedes SFAS No. 14 "Financial Reporting for Segments of a
Business Enterprise", but retains the requirement to report information about
major customers and requires that a public company report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments. SFAS No. 131 requires that a
public company report a measure of segment profit or loss, certain specific
revenue and expense items, and segment assets. However, SFAS No. 131 does not
require the reporting of information that is not prepared for internal use if
reporting it would be impracticable. This Statement also requires that a public
company report descriptive information about the way the operating segments
were determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and
changes in the measurement of segment amounts from period to period. The
Company has not determined the effect if any that SFAS 131 will have on
disclosure in its financial statements. This Statement is effective for the
Company's financial statements for the year ended December 31, 1998.
5
<PAGE> 8
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1997
(CONTINUED)
3. GILPIN HOTEL VENTURE
Summarized financial information relating to GHV is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets $ 2,526,830 $ 2,712,283
Gaming facility, net 8,701,139 8,966,878
Goodwill 1,323,614 1,376,136
----------- -----------
$12,551,583 $13,055,297
=========== ===========
LIABILITIES AND VENTURERS'
INVESTMENTS AND ADVANCES
Current liabilities $ 2,674,392 $ 2,681,137
Long-term debt 4,709,312 5,161,792
Venturers' investments and advances 5,167,879 5,212,368
----------- -----------
$12,551,583 $13,055,297
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Casino $ 6,806,557 $ 6,690,817 $13,889,223 $13,608,918
Food and Beverage 750,222 638,569 1,481,465 1,264,470
----------- ----------- ----------- -----------
Total revenues 7,556,779 7,329,386 15,370,688 14,873,388
Less : promotional allowance 506,968 271,539 1,009,182 564,622
----------- ----------- ----------- -----------
Net revenues 7,049,811 7,057,847 14,361,506 14,308,766
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Casino operations $ 3,216,860 $ 3,099,276 $ 6,381,555 $ 6,298,055
Cost of food and beverage sales 107,592 133,219 218,223 284,160
Food and beverage operations 512,441 523,299 1,008,700 1,028,967
Marketing, general and administrative 2,206,692 2,188,487 4,437,854 4,511,657
Depreciation and amortization 337,960 306,617 670,532 603,074
Interest expense 131,743 139,519 271,131 263,634
----------- ----------- ----------- -----------
Total costs and expenses 6,513,288 6,390,417 12,987,995 12,989,547
----------- ----------- ----------- -----------
NET INCOME $ 536,523 $ 667,430 $ 1,373,511 $ 1,319,219
=========== =========== =========== ===========
</TABLE>
The Company's equity in earnings of GHV as reflected in the
consolidated statements of income has been adjusted for the Company's share of
fees and rentals it receives from GHV. Certain items in the June 30, 1996
financial information have been reclassified to conform to the June 30, 1997
presentation.
6
<PAGE> 9
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(CONTINUED)
4. OTHER MATTERS
Black Hawk / Jacobs Entertainment, LLC (the "LLC") --- During 1994,
the Company signed a joint venture agreement with Jacobs Entertainment, Inc.
(Jacobs) of Cleveland, Ohio to develop a major hotel/casino/parking complex in
Black Hawk, Colorado. After many changes and revisions, the current plan for
the project is a 50 room hotel/casino, with approximately 800 slot machines, 20
table games, three restaurants, three bars, and three floors of underground
parking for approximately 450 cars. As a result of the refinements during the
development process, it was decided to incorporate a two-story overflow parking
facility for approximately 200 additional parking spaces on 44,000 square feet
of Millsite 30 into the Jacobs Project.
On March 27, 1997, the LLC closed financing, effective March 7, 1997,
with Wells Fargo Bank for a $40,000,000 construction loan. The loan has a five
year term, with a variable interest rate based upon the London Interbank rate
("LIBOR") plus 3.5%. Principal payments are due quarterly beginning at the end
of the first quarter after the project is open, which is presently estimated to
be May 30, 1998. See "Liquidity and Capital Resources" under Management's
Discussion and Analysis of Financial Condition and Results of Operations.
On November 12, 1996, the Company entered into an agreement with
Diversified Opportunities Group, Inc. (Diversified) and BH Entertainment Ltd.
(BH) (both affiliates of Jacobs) whereby Diversified, BH, and the Company
created the LLC in which the Company is a 75% owner and the manager of the LLC.
The Company's interest in the LLC is based upon required total equity
contributions of $20,115,000 (including land costs). In connection with the
formation of the LLC, Diversified provided debt and equity financing to the
Company.
As of June 30, 1997, the Company has contributed approximately
$17,139,800 (including land costs) to the LLC which represents 72% of the
contributed capital, as defined, of the LLC as of the end of the second quarter
of 1997. The Company is required to continue to contribute to the LLC until
such time as its capital contributions are equal to its 75% ownership interest,
at which time Diversified will resume its pro rata contributions to the LLC as
necessary. Diversified's ownership in the LLC is reflected as a minority
interest in the accompanying consolidated balance sheet.
Oklahoma property acquisition --- During 1994, the Company acquired a
27,000 square foot parcel of land in downtown Oklahoma City with the intent of
placing the land into tribal trust for the benefit of the Sac and Fox Nation
Indian Tribe for the purpose of operating a 53,000 square foot, high stakes
Indian bingo hall, in a re-development area of downtown Oklahoma City known as
"Bricktown". The Company endeavored to negotiate with the Sac and Fox Nation
Indian Tribe, however, during 1996, negotiations did not progress as the
Company hoped. The exceedingly difficult inter-relationships between the Tribe,
the Bureau of Indian Affairs, and the National Indian Gaming Commission have
caused the Company to reconsider the overall economics of this transaction.
Presently, the Company is pursuing alternative uses of the property or its sale
in which event the Company believes it can recoup its cash cost, however, can
give no assurance in this regard.
5. CAPITALIZED CONSTRUCTION INTEREST
As a result of construction of the hotel/casino/parking complex in
Black Hawk, Colorado, the Company began capitalizing interest expense during
1996. Capitalized interest through June 30, 1997, totaled approximately
$314,500 of which $114,500 related to the three months ended June 30, 1997.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by the financial statements and the notes thereto
included elsewhere in this Report.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
Income before income taxes and extraordinary item for the six months
ended June 30, 1997 increased when compared to the comparable period of 1996 by
$94,788 or 8%. While total revenue of the company and equity in earnings of the
joint venture decreased by $43,952 or 6.5% and $12,688 or 1% respectively;
increased profitability is due to a reduction in total costs and expenses of
approximately $151,428 or 21%. Additionally, the Company realized an
extraordinary gain on the early retirement of debt of $85,771 (net of related
taxes). The following is a discussion of the various changes in the components
of the Company's consolidated statements of operations for the six months ended
June 30, 1997 as compared to the six months ended June 30, 1996.
Revenues
The Company's current period revenue has decreased by $43,952 or 7% as
compared to the comparable period of 1996. The net decrease in the Company's
revenue is comprised of reductions in: management fees of $2,626 or 2%, parking
lot income of $42,608 or 22% and interest income of $29,119 or 28%, and
increases in: rental income of $5,401 or 3% and other income of $25,000.
Management fee income is computed based upon 11% of the defined volume
of the various departments of the Casino's operations reduced by defined
expenses. Usually, as the volume of business of GHV increases or decreases, the
management fee earned by the Company will move accordingly. The current period
costs and expenses of the Casino decreased by approximately $1,552, net revenue
generated by the Casino increased by approximately $52,740. The management fee
earned by the Company for the current period, after elimination of the amount
of such fee attributable to the Company's 50% interest in the Joint Venture,
resulted in a decrease of $2,626 or 2%.
Parking fees are received from the Joint Venture for the use of
Millsite 30 in 1997 and Millsites 30, 31 and 32 on an as needed basis, in 1996,
as parking for the patrons of the Casino. The Company eliminated parking on
Millsite 31 and has reduced the parking availability on Millsite 30 due to the
LLC's current construction efforts. Due to the reduction in available parking
for the Gilpin Hotel Casino by the Company, parking revenue decreased by
$42,608 or 22% when compared to the prior period. The Company may continue to
rent a portion of Millsite 30 to the Gilpin Hotel Casino however, only on a
month-to-month basis and as construction scheduling will allow. The agreement
for the use of Millsite 30 for the benefit of the Gilpin Hotel Casino, ended on
January 1, 1996. Presently, the Company is charging the Gilpin Hotel Casino the
same $50,000 monthly fee established in 1995. During March 1997 the Company
gave formal notice to its Joint
8
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Venture partner in the GHV that effective November 1, 1997, parking will
no longer be available on Millsite 30. The Company would anticipate a decline
in its parking lot operation revenue as a result of the termination of this
agreement and while construction commences on Millsite 30 for the overflow
parking facility for the LLC project.
The Company and its joint venture partner are the co-owners of the
land underlying the Casino. The Joint Venture agreement requires GHV to pay a
monthly land rental fee equivalent to 7% of the net gaming revenues of the
Casino. Rental income attributable to the land underlying the Casino is
reported after elimination of the amount of such fees attributable to the
Company's 50% interest in the Joint Venture. The Company's rental income for
the six months ended June 30, 1997 increased by approximately $5,401 or 3%.
While net gaming revenues of the Casino for the current quarter were up as
compared to the same period last year (as discussed in more detail below), the
overall impact on the Company's rental income was not material.
The remaining portion of the Company's revenue is the result of
interest it receives on temporary cash investments and consulting services.
During the fourth quarter of 1994 the Company advanced $1,495,000 to an
affiliate of its Joint Venture partner in order to effectuate the closing for
the purchase of the Pick-A-Dilly casino. The Company earned 10% on this note,
plus a fee for having made the loan to its joint venture partner. The loan was
repaid in the second quarter of 1996, therefore there was no interest income
related to this note for the six months ended June 30, 1997 whereas $20,102 in
interest was earned on this note in the comparable period of the prior year. As
the Company expends funds on other projects, interest income will decrease.
During the current period, the Company was retained by a Colorado casino to
provide consulting services on a month to month basis, at a rate of $5,000 per
month. As of June 30, 1997, the Company has earned $25,000 for these consulting
services.
Costs and Expenses
Total compensation and related costs for the six months ended June 30,
1997, increased by approximately $58,989 or 17% generally due to the costs for
additional employees of the Company; other general and administrative costs
decreased by $90,535 or 36% as the Company's increased level of activity
pursuing other markets decreased. Interest incurred during construction
totaling approximately $190,101 was capitalized during the current period
resulting in a decrease in interest expense of approximately $119,882 when
compared to the comparable period of the previous year.
Equity in Earnings of Joint Venture
By virtue of the Company's 50% ownership of GHV, the Company is
required to record its share of the net earnings of GHV, after elimination of
intercompany transactions and other adjustments, as "equity in earnings of
Joint Venture." Although the Company receives other revenue from the joint
venture, as discussed above, equity in earnings of the Joint Venture accounts
for substantially all of the Company's income before income taxes. Summarized
financial information on the Joint Venture is provided in Note 3 to the
financial statements included within this report.
9
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During the six months ended June 30, 1997, GHV's revenues increased by
approximately $497,300. However, when reduced by an increase in complimentary
sales of $444,560, net revenues increased by approximately $52,740. The total
costs and expenses of GHV decreased by approximately $1,552. Accordingly, the
net result is an increase in the net income of GHV of approximately $54,292 or
4% over the comparable period of the preceding year.
The competitive environment in the City of Black Hawk continues to
change the dynamics of the gaming industry in Colorado. The principal changes
include: expansion by other casinos; increased parking availability at other
establishments; an increased number of gaming devices; and more aggressive
marketing campaigns by competing casinos. Other factors which put pressure on
the operations of the Casino include reduced accessibility to the Casino due to
traffic flow constraints imposed by the ongoing construction efforts of the
Business Improvement District ("BID.") The BID has been located directly in
front of the Casino since the third week of March and will continue its efforts
into the third quarter of 1997. These factors have required that the casino be
more aggressive with its marketing programs and hence has caused an increase in
promotional costs.
In the opinion of management, the changes in the Casino management of
GHV that occurred during the first quarter of 1996 has had a positive impact on
GHV's operations. The new management has: streamlined the existing operations
of the GHV; increased marketing dollars spent on the busing program to offset
the reduction in parking; realigned marketing programs to provide more benefit
to players; enhanced the food and beverage product; instituted interior design
enhancements to the Casino and concentrated on providing an enjoyable gaming
experience for the GHV customers. Management believes with these changes GHV
has remained competitive and improved its operational efficiency when compared
to the comparable period of 1996.
GHV attributes the approximate $52,740 increase in net revenues to an
increase in net Casino revenue (slot machines, table games and OTB) of $280,305
offset by a decrease in net food and beverage revenue (net of promotional
allowance) of $227,565.
The income statement of GHV, (see note 3 of the accompanying notes to
consolidated financial statements), includes classification of costs and
expenses by operating departments. The net decrease in costs and expenses of
the individual departments has not been significant when compared to the six
months ended June 30, 1996. However, when aggregated, the most significant
changes that comprise the net decrease in costs and expense of $1,552 include,
decreases in: labor costs of $741,337 or 17%; legal fees of $84,763 or 66%;
parking fees of $262,027 or 45%; bad debts of $119,927 or 47%. These decreases
are offset by increases in: marketing and related costs of $602,757 or 54%;
gaming taxes of $253,213 or 10%; food and beverage costs of goods sold of
$94,513 or 17%; contract labor of $37,416 or 36%; property taxes of $57,599 or
310%; progressive jackpot expense of $80,219 or 161%; depreciation of $67,458
or 11%; interest expense of $7,497 or 3%; and other net expenses of $5,830.
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Essentially, the current period decrease in total expenses of $1,552,
when compared to the six months ended of 1996; reflects the operational savings
that have been converted to marketing expenses. The Company believes that many
of the expenses in the current period, when compared to the prior period,
indicate that the additional dollars spent on marketing programs are allowing
the Casino to remain competitive.
In the opinion of management, GHV's operations for the six months
ended June 30, 1997 are competitive relative to other casinos in Black Hawk as
well as the other two Colorado gaming districts. GHV's adjusted gross proceeds
(AGP) (total gambling receipts less jackpots/winnings, less restocking monies
for slot machines, plus monies collected from table games and deposited with
the cashier) averages for slot machines and table games remains in excess of
the overall gaming AGP averages for the state and the city of Black Hawk.
Income taxes
The current quarter income tax expense is based upon a combined
federal and state tax rate approximating 37%. The Internal Revenue Service
(IRS) has examined GHV's 1992, 1993, 1994 and 1995 income tax returns. GHV and
the IRS have reached a settlement for findings, in GHV's 1992, 1993 and 1994
income tax returns which will increase the amount of taxable income of GHV by
approximately $128,000, $158,000 and $200,000, respectively. GHV and the IRS
have also reached a settlement of findings of GHV's 1995 income tax return
which will decrease the amount of taxable income allocated to the venturers by
approximately $57,000. The findings represent principally temporary
differences, which will reverse in future years.
Net income per share of common stock
Results of operations for the six months ended June 30, 1997 yielded
net income per common share before extraordinary item of approximately $.31; an
extraordinary gain on early retirement of debt, net of estimated income taxes
yielded $.03 per share, for a combined net income per share of $.34 on weighted
average shares outstanding of 2,672,090. Earnings per share for the comparable
period in 1996 was $.29 based on weighted average shares outstanding of
2,513,572.
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
QUARTER ENDED JUNE 30, 1997 COMPARED TO THE QUARTER ENDED JUNE 30, 1996
Generally, no activity occurred during the quarter ended June 30, 1997
that has not otherwise been discussed in the comparison between the six-month
period of 1997 to the six month period of 1996 with respect to the Company's
overall operations. However, the following is a discussion surrounding
significant factors affecting the Casino's operation for the second quarter of
1997 as compared to the second quarter of 1996.
Equity in earnings of Joint Venture
During the three months ended June 30, 1997 GHV's revenues increased
by approximately $227,393. However, when reduced by an increase in
complimentary sales of $235,429, net revenues decreased by approximately
$8,036. The total costs and expenses of GHV increased by approximately
$122,871. Accordingly, the net result is a decrease in the net income of GHV of
approximately $130,907 or 20% over the comparable period of the preceding year.
GHV attributes the approximate $8,036 decrease in net revenues
principally to an increase in net Casino revenue (slot machines, table games
and OTB) of $115,740; offset by a decrease in net food and beverage revenue
(net of promotional allowance) of $123,776.
The income statement of GHV, (see note 3 of the accompanying notes to
consolidated financial statements), includes classification of costs and
expenses by operating departments. The net increase in costs and expenses of
the individual departments for the three months ended June 30, 1996, is
$122,871 or 2%, over the comparable period of the prior year. The most
significant changes that comprise the net increase in costs and expense include
decreases in: labor costs of $339,375 or 16%; legal fees of $35,593 or 55%;
parking fees of $108,606 or 40%; bad debts of $45,035 or 38%; interest expense
of $7,776 or 6%. These decreases are offset by increases in: marketing and
related costs of $202,656 or 34%; gaming taxes of $157,249 or 13%; food and
beverage costs of goods sold of $66,144 or 25%; contract labor of $28,248 or
52%; property taxes of $63,419 or 252%; progressive jackpot expense of $61,663
or 203%; depreciation of $67,458 or 11%; and other net increase of $12,419.
As stated in the six month analysis, the Company believes that many of
the expenses in the current period, when compared to the prior period, indicate
that the additional dollars spent on marketing programs are allowing the Casino
to remain competitive.
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $361,291 in the first
six months of 1997 and $174,766 in the first six months of 1996. The principal
reason for the increase in cash provided by operating activities is due
principally to an increase in income taxes receivable and a gain on the early
retirement of debt as well as an increase in net income of $167,834.
Net cash used in investing activities for the first six months of 1997
was $7,017,946 and was primarily the result of: payments for project
development costs associated with the LLC totaling $7,691,024 and other
miscellaneous payments of approximately $35,922. These expenditures were offset
by distributions from GHV of $709,000. During the first six months of 1996 the
net cash provided by investing activities totaled approximately $2,250,959 and
was primarily the result of distributions from GHV of $1,746,563 and loan
repayments of $1,335,971 offset principally by project development cost
payments totaling $475,000 and other expenditures of $318,465.
The net cash provided by financing activities during the first quarter
of 1997 amounted to $5,954,788 and principally was the result of proceeds from
the issuance of convertible debt to Jacobs Entertainment, Inc. totaling
$4,500,000 and minority interest contributions totaling $3,831,188. These
increases are offset by the acquisition of common stock "put" to the Company
totaling $137,499 and payments on long-term debt aggregating $2,238,901.
Financing activities used $1,035,147 in the first six months of 1996,
principally the result of the acquisition of treasury stock and common stock
"put" to the Company totaling $290,085 and payments on long-term debt of
$745,062.
The Company's principal sources of capital consist of cash flow
distributions from GHV and cash generated from its rental and management
operations and minority interest contributions to its majority owned
subsidiary. As of June 30, 1997 the Company has working capital of
approximately $2,000,000 as compared to $4,400,000 at December 31, 1996. During
the first six months of 1997 the Company received $709,000 of distributions
from GHV, however, the project development costs associated with the LLC has
decreased working capital as compared to December 31, 1996.
The Company believes its current working capital position,
distributions from GHV, as well as the additional proceeds from the sale of
convertible notes and/or stock pursuant to the Jacobs transaction, discussed
below, will be sufficient to meet its short term working capital requirements,
which are operating expenses and capital contributions required by the LLC
prior to drawing upon project financing. Any significant development of other
projects by the Company will require additional financing, other joint venture
partners, or both.
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The recoupment provision of the GHV agreement provides the Company
with a small amount of working capital in addition to the distributions it
receives from GHV. The Company's joint venture partner is obligated to repay to
the Company a remaining balance of $1,244,000 for its proportionate share of
development costs of the Gilpin Hotel Casino. This balance is to be repaid out
of the joint venture partners share of 40% of the after tax distributions of
GHV, if any (the recoupment account formula).
There were no repayments against the development account during the
quarters presented. The Company's joint venture partner (GVI) is withholding
payment against this recoupment account and is disputing certain expenses paid
by, and distributions made to the Company. The Company has made numerous
requests of GVI to prepare a detailed listing of the dates, description and
amounts of the disputed items, however the Company's joint venture partner has
not provided any such explanation. The Company anticipates arbitration
proceedings to commence to collect the approximate $400,000 balance due to the
Company as of June 30, 1997, as calculated using the recoupment account
formula.
In December 1994, the Company entered into a joint venture agreement
with Jacobs Entertainment, Inc. ("Jacobs") of Cleveland, Ohio to develop a
major hotel/casino/parking complex in Black Hawk. After many changes and to
accommodate certain infrastructure requirements of the city of Black Hawk and
other state and federal agencies, the current plan for the project has now
evolved into a single phased 50 room hotel/casino, with approximately 800 slot
machines, 20 table games, three restaurants, three bars, three floors of
underground parking and an attendant two-story over-flow parking structure on
adjacent Millsite 30. Total parking will accommodate approximately 650
vehicles. The project is owned by the LLC in which the Company owns a 75%
interest and Jacobs owns a 25% interest.
In connection with the LLC agreement, the Company issued 190,476
shares of its $.001 par value common stock to Diversified Opportunities Group,
Inc. (Diversified) for $1,000,000 and also issued a convertible promissory note
amounting to $1,500,000. The promissory note is convertible at $5.25 per share
and is secured by a first priority lien on 100% of the Company's interest in
the LLC. Interest on the note is at a variable rate per annum, computed based
upon the London Interbank rate (LIBOR) plus 2% and is payable quarterly.
Additionally, the LLC agreement further provides for Diversified to invest an
additional $4,500,000 in convertible notes under the same terms and conditions
as the $1,500,000 of convertible notes. These additional proceeds were received
during the second quarter of 1997.
In December 1996 the LLC gave the contractor "notice to proceed" with
limited construction pending securing of permanent financing. On February 27,
1997 the LLC obtained its excavation / foundation permit from the City of Black
Hawk and on March 27, 1997, effective March 7, 1997, closed its financing with
Wells Fargo Bank for a $40,000,000 construction loan.
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Since the commencement of the project, the Company has contributed its
share of the LLC costs, totaling approximately $17,139,800 through June
30,1997, as well as an additional $297,000 in costs which were incurred prior
to formation of the LLC, out of current working capital and/or funds generated
by operations. Presently the total project costs, including land costs, are
estimated to be approximately $67,800,000.
Under the terms of the credit facility agreement the Company must
contribute approximately $20,115,000 million in equity (including land costs)
to the LLC project for its 75% interest before disbursements under the credit
facility will be made by the lender. It is anticipated that the majority of
this commitment will be met from the contribution of certain land ($8,682,300),
credit for development costs already paid ($8,457,500), unfunded commitments
from other officers and directors ($750,000), loans from officers and directors
($750,000) and from current working capital ($1,475,200). As the result of
using most of its current working capital, the Company may find it necessary to
seek additional sources of either debt or equity financing.
STATUS OF CONSTRUCTION OF THE LODGE CASINO AT BLACK HAWK
The Company believes that the anticipated construction issues
surrounding the project appear to be minimal and the project will be completed
by the May 30, 1998, scheduled opening. As of June 30, 1997, all land related
to the project, totaling $11,466,988 has been contributed by the Venturers and
the LLC has expended approximately $13,346,500 for construction costs. The
Venture anticipates commencing borrowing funds on its $40,000,000 construction
line of credit with Wells Fargo Bank in August 1997. Any shareholder wishing to
view the weekly status of the project as construction continues is invited to
do so on the world wide web on http://members.aol.com/buildum.
15
<PAGE> 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
See the registrant's report on form 10-Q for the quarter ended March
31, 1997, incorporated herein by reference.
PART II - OTHER INFORMATION (continued)
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule*
- -----------------
* Previously Filed.
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Black Hawk Gaming & Development Company, Inc.
---------------------------------------------
Registrant
Date: September 11, 1997 By: /s/ Jeffrey P. Jacobs
-------------------------------------------
Jeffrey P. Jacobs, Co-Chairman of the Board
of Directors and Chief Executive Officer
/s/ Stephen R. Roark
-------------------------------------------
Stephen R. Roark, President and Chief
Financial Officer
17
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedule*
</TABLE>
- ----------------
* Previously Filed
